The Skinny on Student Loans

My wife and I were conducting a financial workshop at a university a few months ago. One of the questions I asked was, “Is a student loan good debt or bad debt?” Some said that it was good debt because the end result was getting a degree, which would land them a job. Another person said that it was necessary debt, because how else would they get a degree? I told them it was bad debt. By the look on their faces, I had gone from the friend zone to the end zone. They didn’t seem happy and some looked confused. I went on to say, “Suppose I said to you: ‘I would give you all the instruction you need to maybe (justmaybe) get a job that would pay you 40K per year. You just need to give me 50K for the privilege.’ Does that sound like a great deal?” No way, Hosea!

50K is the average debt that these kids have at university. Some people I know have much larger debt. Why would you take on so much debt for something that is not even a sure thing? It’s crazy. Most students I talk to don’t really have much of an idea of what they want to do after university. Yet, they spend all this money (and time, don’t forget the time) on courses they don’t even know if they will use in the future. It’s because that is what everyone else is doing.

I went on to say that, “If you take on a debt of 50K, it will take you over 4 years to pay back at a 40K per salary (assuming average household expenses). Assume you started with no money before you went to university and you take 4 years to get your degree. It would take you around a decade (that’s ten years people) to be back to where you started with no money. How is that a good thing? To have no money after ten years. Yes, but you have a piece of paper. How lovely.

How, then can you do the uni thing, but not lose out? I’m glad you asked. Here is how I did it. I worked for my old man grooming cars for a year before I went to uni. I saved up enough to able to pay for myself without getting into debt. When I was at uni, I also worked part-time in grooming the cars.

Here is how Mrs Cossack did it. She worked part-time in a supermarket when she was at high school. When she was at university, she was working part-time as a receptionist at a physiotherapy clinic. We both worked at minimum wage or under. I called it slave labour working for my dad (but that is another woeful story). We lived with our parents (different parents) and we paid board to them. So, we didn’t have it too easy.

That’s how I will suggest my kids do it. I am not going to pay for the university tuition. I know that might shock some people. I have already had people call me reckless. It’s not because I don’t care. I want them to learn about what is important to them. If it doesn’t cost them something then they won’t value it. Actually, that’s a great idea for another blog post.